Magnolia LNG signs EPC contract with SK E&C

Liquefied Natural Gas Ltd (LNG Ltd) has announced that its wholly owned subsidiary, Magnolia LNG LLC, has agreed an EPC contract with SK E&C USA in relation to the Magnolia LNG Project.

The EPC contract covers the initial 4 million tpy LNG installation, comprising two LNG trains. Each LNG train will have a design capacity of 2 million tpy, two 160 000 m3 storage tanks, a jetty and ship loading facility and related infrastructure, and all required approvals and licenses for the full 8 million tpy project. An additional two x 2 million tpy trains (trains 3 and 4) are planned to follow the initial 4 million tpy installation.

The Lump Sum Turn Key model has now been forwarded to BNP Paribas, Magnolia LNG's project finance adviser, Merlin Advisors LLC, the lenders' technical consultant, and legal advisors White and Case for final review. The finance adviser review aims to ensure third party acceptability of all proposed EPC contract provisions to enable Magnolia LNG financial close consistent with project timelines. The contract has also been forwarded to Stonepeak Partners LLC, the proposed Magnolia LNG Project Equity partner.

Execution of the EPC contract is planned for later this month, subject to LNG Ltd Board approval.

LNG project costs

The capital cost for the initial contracted work totals US$1.986 billion for the two-train installation and associated facilities, and comprises a lump sum, fixed price of US$1.391 billion (70% of contract value) valid through 30 June 2015; and a provisional sum of US$595 million representing 30% of contract value.

During the period to 31 March 2015, LNG Ltd and SK E&C will conduct further optimisation and cost reductions. Any resultant cost reductions will be apportioned between the parties, but in any event, the lump sum component will not exceed the agreed fixed price of US$1.391 billion. LNG Ltd and SK E&C will continue to develop, finalise and agree the provisional sum by 31 March 2015, with the agreed amount converting to a lump sum, fixed price contract at that time, also valid to 30 June 2015.

During the period to 31 March 2015, the parties will also agree to the capital cost for Trains 3 and 4, currently estimated at ~US$1 billion total for the two trains, and a timeline to fully implement the 8 million tpy Magnolia LNG Project at an estimated total cost of US$3.5 billion as summarised below.

The final EPC capital cost is estimated at ~US$3 billion, with a total project cost (inclusive of company costs) estimated at US$3.5 billion. LNG Ltd first advised the estimated total cost of US$3.5 billion on 24 February 2014, and this capital cost estimate has been included in all documentation submitted to the Federal Energy Regulatory Commission (FERC) as part of Magnolia LNG’s filing currently being progressed with FERC.

LNG Ltd Managing Director and Chief Executive Officer, Maurice Brand, said: "Based on recently reported data, [Magnolia LNG] remains at the very low end of capital costs on a per/tonne basis, when compared with other US LNG projects. The SK E&C costs reinforce the company's view that our business model of mid-scale, modular based LNG trains of 2 million tpy design capacity, incorporating the company's OSMR® LNG liquefaction process, is valid and provides for a sustainable long-term business that can be replicated in the future."

MLNG's Chief Operating Officer, John Baguley, added: "I am pleased with the steady progress being made with the SK E&C Group as we work through all the EPC Contract and project related activities towards planned financial close in mid-2015. The period through to 31 March 2015, during which we will convert the Provisional Sum into a combined lump sum, fixed price contract valid to 30 June 2015, will position Magnolia LNG to immediately enter construction phase once all necessary approvals and licenses are received. This period will also allow us to incorporate any comments received from FERC as they prepare the Draft Environmental Impact Statement, and to undertake the rigorous planning and scheduling required to provide first LNG in 2018. The SK E&C project schedule and budget through to 30 June 2015 remain on target."